Germany plans tax cuts to boost stagnant economy

FRANKFURT

A pigeon flies past the Commerzbank logo on the bank headquarters building in the banking district of Frankfurt am Main, western Germany, on May 29, 2025

Europe's top economy is planning tax cuts to help kick-start growth, a German government spokesman has said, adding that the aim was to pass the measures soon.

The government is looking at new tax credits for research, investment and electric company cars as well as cuts to corporation tax of one percent a year for five years from 2028 onwards, Finance Ministry spokesman Maximilian Kall told reporters.

"Everybody's aim... is to boost the economy now," Kall said.

Germany's economy is struggling to emerge from a persistent slump, hit by high energy and labor costs at home as well as increasingly fierce Chinese competition and new trade barriers imposed by U.S. President Donald Trump.

The government officially forecasts zero GDP growth for this year after the economy shrank slightly in 2023 and 2024.

On May 31, the Handelsblatt business newspaper reported that the government estimated the cost of the measures at 17 billion euros ($19.4bn) a year by 2029.

Robin Winkler, Chief Germany Economist at Deutsche Bank, said the plan would provide "a welcome short-term stimulus for the manufacturing sector" without being a silver bullet.

"Its impact on facilitating the broader structural transformation of the German economy is likely to be limited," he said in a research note.

Germany's new government under conservative Chancellor Friedrich Merz also plans to spend 500 billion euros over the next 12 years to upgrade Germany's creaking infrastructure and give the economy another boost.